Building a Great City

Tax Increment Financing and Ohio's Definition of Blight

Cincinnati was late to the Tax Increment Financing party. As is often the case with legislative experimentation, this creative real estate development tool started on the west coast with those crazy Californians in 1956 and though we dabbled occasionally, our enthusiasm did not take off until 2004 after Ohio state law was relaxed to include districts. It was then-Council member, John Cranley – a real estate lawyer by training and developer of the Incline District condo project in East Price Hill – who introduced the motion to divide the city into 20 TIF Districts.

The way it works is pretty simple: the land has to be owned by the city and after the real estate developer sells the property to the public for a nominal amount, the city or a city agency issues bonds to finance their building project. We give up taxes on the improved value for a fixed period of time and pay for any parts of the building that are deemed to be for direct public benefit (up to about 20% of total costs). In return the city gets a new building – and if all goes according to plan – more jobs and residents. The developer pays the debt back with the money that would usually go to property taxes. Every Tax Increment Financing agreement is a legally binding agreement voted on by City Council. According to a 2004 report by Valerie Lemming, city manager at the time of the initial implementation, this type of incentive is supposed to be reserved for development in an urban renewal area, the designation of which is the result of “a determination that the area is blighted according to state law.”

Sounds good. And sometimes it is. 3CDC has used Tax Increment Financing to jump-start the development of our historic building stock in Over-the-Rhine, a neighborhood formerly known for its 500 empty buildings and the highest crime rate in the city.

But like any program that involves huge dollars from the public coffers, TIF is prone to abuse and is a source of citizen outcry throughout the country. Too often these financing tools fail to achieve public goals, diverting money from schools, parks, and other important basic services. According to a report commissioned by the Ford Foundation in 2011, “Poorly designed TIF programs can give government officials a tool to lavish subsidies on favored or well-connected developers – regardless of the project’s public benefits.” After two lawsuits, California has completely discontinued their use.

Regular readers of Cincyopolis know that I am not a fan of the public subsidy of the Queen City Square development on east Fourth St, now known as the Great American Tower. And the first thing that made me raise my eyebrows when I realized we’d given them a 30-year property tax free-ride was the association of ‘blight’ with this area of town. I’ve lived in Cincinnati all my life and never considered E. Fourth to be a slum. While there were empty buildings, most of them were owned by Western & Southern as they waited for the expiration of the historic district designation to redevelop their properties without those restrictions. And the “but for” argument that is sometimes used as the determination for a project’s eligibility for incentive programs – the idea that a project wouldn’t be developed if not for the incentives – is unsupportable as Western & Southern had the cash to buy the entire bond issue and had been talking to City Council about development plans since the late 90s.

Here’s Ohio’s legal definition of ‘blight.’ What do you think?

1.08 Blighted area defined – excluded considerations.

As used in the Revised Code:

(A) “Blighted area” and “slum” mean an area in which at least seventy per cent of the parcels are blighted parcels and those blighted parcels substantially impair or arrest the sound growth of the state or a political subdivision of the state, retard the provision of housing accommodations, constitute an economic or social liability, or are a menace to the public health, safety, morals, or welfare in their present condition and use.

(B) “Blighted parcel” means either of the following:

(1) A parcel that has one or more of the following conditions:

(a) A structure that is dilapidated, unsanitary, unsafe, or vermin infested and that because of its condition has been designated by an agency that is responsible for the enforcement of housing, building, or fire codes as unfit for human habitation or use;

(b) The property poses a direct threat to public health or safety in its present condition by reason of environmentally hazardous conditions, solid waste pollution, or contamination;

(c) Tax or special assessment delinquencies exceeding the fair value of the land that remain unpaid thirty-five days after notice to pay has been mailed.

(2) A parcel that has two or more of the following conditions that, collectively considered, adversely affect surrounding or community property values or entail land use relationships that cannot reasonably be corrected through existing zoning codes or other land use regulations:

(n) Extensive damage or destruction caused by a major disaster when the damage has not been remediated within a reasonable time;

(o) Identified hazards to health and safety that are conducive to ill health, transmission of disease, juvenile delinquency, or crime;

(p) Ownership or multiple ownership of a single parcel when the owner, or a majority of the owners of a parcel in the case of multiple ownership, cannot be located.

(C) When determining whether a property is a blighted parcel or whether an area is a blighted area or slum for the purposes of this section, no person shall consider whether there is a comparatively better use for any premises, property, structure, area, or portion of an area, or whether the property could generate more tax revenues if put to another use.

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About executivedreamer

Former financial consultant and straight-ticket Republican until 2000, I quit my wonderful, fascinating, well-paid job to go explore what else was in the world. These days I can't be bought with money, drive my car 1,000 miles a year and spend summers in Italy.